Fixed asset categories – land, buildings & improvements

Organizations typically categorize fixed assets into distinct groups, four of which include land, land improvements, buildings and building improvements.

Land that is purchased or donated is usually capitalized but not depreciated.  Land can be recorded at, and remain at, historical cost.  When land and a building are acquired as a package, most organizations will opt to determine separate values for each.  Costs involved in the formation of a structure can be capitalized and included with the land.

Land improvements include those that are permanent and add a significant value to the land, such as site improvements (examples include fencing and excavation) and infrastructure (examples include driveways, parking lots and roads).  Non-permanent improvements can be covered under machinery/equipment.

Buildings are typically valued at the time of acquisition or construction.  Broker and architect fees, permits, etc. can be covered within this category.  Building components, such as a roof, are normally recorded separately in an asset register since the value and useful lives of these components equal much less than the building itself. 

Building improvements that extend the useful life of a building will fall into the category of “building improvements” and should be capitalized.  Improvements are commonly recorded at acquisition cost.  Building improvement examples include roofing, remodeling, replacements, etc.